Reserve Bank of India – Press Releases
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The Result of the auction of State Development Loans for 9 State Governments held on October 12, 2021.
Ajit Prasad Press Release: 2021-2022/1030 |
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Month: October 2021
AUMs of NBFCs to rise 18–20% y-o-y this fiscal: Crisil Ratings.
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Assets under management (AUM) of non-banking financial companies (NBFCs), which primarily offer loans against gold, are expected to rise 18–20 per cent to ₹1.3 lakh crore this fiscal against ₹1.1 lakh crore in FY21, according to Crisil Ratings.
The credit rating agency said that this growth would be despite a contraction in the first quarter, when pandemic-driven lockdown measures hindered branch operations and kept potential borrowers away.
The agency added that demand for gold loans from micro enterprises and individuals — to fund working capital and personal requirements, respectively — has increased with a pick-up in economic activity and the onset of the festive season, which coincides with the easing of lockdown restrictions by several States.
Sought-after asset
Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, said, “Gold-loan disbursements have rebounded sharply in the second quarter of this fiscal after a dismal first quarter. We expect this momentum to continue for the rest of this fiscal.”
He emphasised that gold loans will continue to be a sought-after asset class, while lenders would remain cautious about growth in many other retail asset classes.
Also see: NBFCs: No need to press the panic button yet
From a credit perspective, gold loans are a highly secured, liquid asset class that generates superior returns with minimal credit losses, the agency said.
Therefore, NBFCs that offer them are better placed than those extending loans to most other retail asset classes, especially in times of asset-quality pressure spawned by the pandemic.
Risk management
The agency noted that historically, gold-loan NBFCs have seen negligible losses because of robust risk management practices such as periodic interest collection (which keeps the loan-to-value, or LTV, under check) and timely auctions of gold.
Also see: What’s next for gold loans after the pandemic?
“Maintaining LTV discipline adds to the comfort. But sharp swings in the price of gold impacts both, the portfolio and disbursement LTV, as it influences the cushion available with lenders.
“Lenders faced this issue last fiscal because gold prices fell sharply between January and March 2021, after the August 2020 peak,” the agency said.
NBFCs vs banks
On their part, NBFCs have manoeuvred the situation well, Crisil Ratings said, adding that banks, on the contrary, were less proactive and so have seen a rise in delinquencies and faced challenges in rolling over a part of their portfolio to 75 per cent LTV (as per current Reserve Bank of India guidelines) after the 90 per cent LTV dispensation ended in March 31, 2021.
Banks’ loan against gold jewellery portfolio grew by about 80 per cent in FY21.
Ajit Velonie, Director, Crisil Ratings, observed that gold-loan NBFCs have been swift in calibrating disbursement LTV while also implementing strong risk management practices to keep portfolio LTV in check.
Also see: IIFL Finance launches instant business loan on WhatsApp
Besides ensuring periodic interest collection, they do not flinch from conducting auctions when required — which rose sharply in March and April 2021 — to avert potential asset-quality challenges.
Velonie said timely auctions have ensured that credit costs — a more appropriate indicator of asset quality for gold-loans — remained in check at 30 basis points, well within the historical range.
With leverage being low and pre-provision profitability remaining strong, Crisil Ratings expects the overall credit profile of gold-loan NBFCs to remain stable.
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Buy This Bank Stock With Upside Potential of 39%, Says Nirmal Bang
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Equitas Bank: Well placed for long term opportunities
Equitas Bank has identified three important growth levers: (1) Small Business Loans, (2) Home Loans, and (3) Vehicle Finance. It has 8-10 years of experience in these categories and has established underwriting methods that provide it a significant advantage over other SFBs, which are primarily focused on MFI lending.
“The current valuation at 1.6x and 9.6x Sept’23 P/ABV and P/E is undemanding and does not factor in strong growth potential, improving liability franchise and possible transition to a universal bank. We value Equitas Bank at 2.25x Sept’23 P/ABV to arrive at our Target Price of Rs89. Key risks are events that could affect borrowers’ cashflows,” the brokerage has said.
Nirmal bang has issued a buy call on Equitas Small Finance Bank with a target price of Rs 89, with an upside potential of 39%.
Collection efficiency improves; asset quality to follow
Equitas Bank’s collection efficiency (CE) increased to 105 percent in July of this year, up from 78 percent in May, when covid-induced constraints were eased. It’s worth mentioning that when the initial covid wave hit, all of the bank’s customers chose to put their accounts on hold. Following that, the bank’s CE increased to 105 percent in December 20 and 109 percent in March 21. In fact, until April 21, Equitas Bank’s CE was trending in line with AU SFB (similar rival), with Equitas Bank’s performance dropping only in May 21. With the increase in economic activity, we believe the worst is likely past in terms of asset quality, and we factor in credit costs of 2% over FY22E-24E.
Key Investment Thesis
Scalable business model with a strong vintage:
Equitas Bank has identified three business lines as important growth levers: (1) Small Business Loans, (2) Home Loans, and (3) Vehicle Finance. It targets the bottom of the pyramid, where credit evaluation and underwriting are time-consuming, limiting bank competition.
Strong liability traction:
To source deposits, Equitas Bank focuses on the mass affluent group in metropolitan and semiurban areas. Through its own SELFE accounts (entirely digital acquisition) or fintech partnerships, it has bolstered its digital acquisition strategy. It offers industry-leading savings rates (7%) to attract deposits of more than Rs0.1 million, which has found traction, with CASA deposits climbing to Rs82 billion, a rise of 153 percent and 21% YoY/QoQ in the last year.
Asset quality to improve as covid restrictions have eased:
Equitas Bank’s CE increased to 105 percent in July, up from 78 percent in May, as covid-induced restrictions were eased. From Rs4.3bn (2.4 percent of advances) in 4QFY21 to Rs13.3bn (7.4 percent of advances) in July’21, the restructured book climbed to Rs13.3bn (7.4 percent of advances).
Equitas Bank can clock 17%-18% RoE on a steady-state basis:
Because 90-95 percent of advances have a fixed rate of interest, interest yields are protected. However, when the bank’s share of Micro Finance declines and it advances up the value chain in the client selection process, this may lessen slightly.
Valuation remains attractive for strong growth potential and healthy RoA:
“Equitas Bank is currently trading at 1.6x and 9.6x Sept’23 P/ABV and P/E, respectively. We have seen strong momentum in CASA mop-up while disbursements reached all-time high in 2QFY22 (business update filing) as business activities have normalized. Equitas Bank has a strong CAR at 24.1% with Tier 1 capital of 22.6%, which should support growth over the next three years without a capital raise. We estimate AUM/NII/PAT CAGR of 22%/19%/32% over FY21-24E with RoA and RoE reaching 2.3% and 17.8%, respectively by FY24E.
We initiate with a Buy and a TP of Rs89, valuing it at 2.25x Sept’23 P/ABV. Key Risks – Severe third covid wave or events that could affect borrowers’ cash flows. Dilution overhang reduces as the RBI has permitted Equitas Bank to apply for amalgamation with its Holdco – Equitas Holdings Ltd. Also, the RBI’s discussion paper on harmonizing banking guidelines no more requires promoters to reduce their stake to 40% within 5 years. The interim dilution targets of ~5-15 years are proposed to be removed. However, the same has not yet been implemented”, the brokerage has said.
Disclaimer
Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. The above stock is from Nimal Bang brokerage. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are near record highs.
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Bank FD to fetch negative real interest with elevated inflation, BFSI News, ET BFSI
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New Delhi, Oct 12 (PTI) Senior citizens and others depending upon income from bank fixed deposit (FD) schemes will be at the receiving end with the retail inflation exceeding the interest rates. The Reserve Bank of India (RBI) in its latest monetary policy review has projected retail inflation at 5.3 per cent for the current financial year.
Last week, the RBI said that the Consumer Price Index (CPI)-based inflation is now projected to be at 5.3 per cent for 2021-22 with risks evenly balanced.
At this level, the fixed deposit for one year with the country’s largest lender State Bank of India (SBI) would rather earn negative interest. The real interest rate would be (-) 0.3 per cent for the saver.
Real rate of interest is card rate minus inflation rate. The retail inflation for August stood at 5.3 per cent.
Even for higher tenure 2-3 years, the interest rate earned is 5.10 per cent lower than expected inflation for the current fiscal.
In the private sector, the market leader HDFC Bank offers 4.90 per cent interest rate for 1-2 year fixed deposits while 5.15 per cent for 2-3 years.
However, small savings schemes run by the government offers better return compared to fixed deposit rates of banks. For term deposits 1-3 years, the interest rate offered is 5.5 per cent higher than inflation target.
There is natural advantage of moving money from bank FD to government saving schemes as rates are slightly higher. Thus, the real rate of interest is in the positive territory.
Experts said that it is a usual phenomenon that real returns are negative in a crisis and post-recovery world, given the way fiscal stimulus to overcome difficulty.
India is no exception and in fact, new asset allocation patterns would need to emerge, with more allocation to real assets from financial assets.
Real rates are going to be negative for a while, given that the post crisis repairs may take some time and it is imperative that financial literacy initiatives guide people into making the right investment choices, Grant Thornton Bharat partner Vivek Iyer said.
“A negative rate of interest, for savers on bank deposits, these days, is a reality, which the depositors have to face because of a complex set of factors.
“The present average savings deposit rate offered by banks which is around 3.5 per cent and less than five per cent rate on one year deposit indicates a negative return, not even covering the expected inflation rate,” Resurgent India Managing Director Jyoti Prakash Gadia said.
The impact of negative interest on bank savings deposits is obvious, with lower growth of such deposits and the public now seeking alternatives like mutual funds and equity for better returns.
The options although involving more risk have shown phenomenal growth which is likely to continue till inflation is tamed or bank deposit rates are substantially increased, Gadia added. PTI DP CS HRS hrs
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Reserve Bank of India – Press Releases
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Ajit Prasad Press Release: 2021-2022/1029 |
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2 Best Recurring Deposits For Investment In 2021 To Get Returns Up To 8.50%
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Shriram Transport Finance Recurring Deposit
Shriram Transport Finance enables recurring deposits with terms ranging from 12 to 60 months. All resident individuals and HUFs can open a recurring deposit (RD) account based on their personal financial goals to receive a variety of benefits such as premature withdrawal, auto refund, auto-renewal, online account opening feature, online recurring deposit calculator, and a minimum deposit amount of Rs 500 per installment.
Recurring Deposits at Shriram Transport Finance can also be opened on behalf of a minor or in joint names of two to three residents. Senior citizens are not allowed to get additional rate benefits on their deposits, and also loans against deposits are not allowed by Shriram Transport Finance.
Shriram Transport Finance Recurring Deposit Interest Rates
Keeping aside the interest rate component for a moment, I’d like to inform our readers and investors that Shriram Transport Finance Recurring Deposit has been rated “FAAA/Stable” by Credit Rating Information Services of India Limited (CRISIL) and “MAA+ / with Stable Outlook” by Investment Information and Credit Rating Agency of India Limited (ICRA).
This rating demonstrates us a comprehensive perspective on deposit safety and good credit health. Investing in recurring deposits of Shriram Transport Finance can be a smart choice because AAA is the highest rating and is healthier than those with AA, A, or BBB ratings. However, investors should bear in mind that, unlike bank FDs, corporate FDs do not cover deposit insurance benefits provided by DICGC.
However, we would like investors to not look at the attractive interest rates first and invest only for the short term to minimize both interest and principal risk in case of default as we have seen 2 years back with Dewan Housing Finance Ltd. (DHFL).
| Period (months) | Rate in % |
|---|---|
| 12 | 7.03 |
| 24 | 7.12 |
| 36 | 8.18 |
| 48 | 8.34 |
| 60 | 8.50 |
| With effect from 1st August 2021 |
North East Small Finance Bank Recurring Deposit
North East Small Finance Bank is presently offering the highest interest rate of 7.50 percent to the general public and 8.00 percent to senior people on recurring deposits maturing in two years among all small finance banks, including private and public sector banks. Investing in a recurring deposit with North East Small Finance Bank to achieve an unbeatable interest rate and DICGC deposit safety is a good option for investors who don’t want to take any risk with their principal amount and applicable interest rates based on their chosen maturity term
| TENURE | Interest Rates In % For Regular Customers | Interest Rates In % For Senior Citizens |
|---|---|---|
| 3 Months | 4.25 | 4.75 |
| 6 Months | 4.50 | 5.00 |
| 9 Months | 5.50 | 6.00 |
| 1 Year | 5.50 | 6.00 |
| 2 Year | 7.50 | 8.00 |
| 3 Year | 7.00 | 7.50 |
| 4 Year | 7.00 | 7.50 |
| 5 Years | 6.50 | 7.00 |
| More than 5 years upto 10 years | 6.50 | 7.00 |
| Source: Bank Website, Effective from 19th April 2021 |
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Reserve Bank of India – Press Releases
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Ajit Prasad Press Release: 2021-2022/1028 |
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10 Best Dividend-Paying Penny Stocks In India
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SJVN
The Satluj Jal Vidyut Nigam, or SJVN, is an Indian government-owned company that generates and transmits hydroelectric power.
Only 0.71 percent of trading sessions in the last 11 years had intraday gains of more than 5%. The stock returned 5.47 percent over three years, compared to 96.44 percent for the Nifty Midcap 100. Over a three-year period, the stock returned 5.47 percent, whereas the S&P BSE Power provided investors a 75.42 percent gain. SJVN Ltd., founded in 1988, is a Mid Cap business in the Power sector with a market capitalization of Rs 11,082.02 crore.
SJVN Ltd. has declared an equity dividend of Rs 2.20 per share in the last 12 months. Since September 1, 2010, SJVN Ltd. has issued 19 dividends. This equates to a dividend yield of 7.8 percent at the current share price of Rs 28.20.
Steel City Securities
Steel City Securities Limited is a stockbroking firm that deals with regular investors. The company offers a wide range of financial goods and services, including mutual fund distribution, fixed income, initial public offerings (IPOs), and corporate debt, as well as securities and commodity trading.
Steel City Securities Ltd., founded in 1995, is a Small Cap business in the Financial Services industry with a market cap of Rs 90.11 crore. Stock returned -15.05 percent during a three-year period, compared to 96.41 percent for the Nifty Smallcap 100. Since March 21, 2017, Steel City Securities Ltd. has declared 13 dividends.
Steel City Securities Ltd. has issued an equity dividend of Rs 3.00 per share in the last 12 months. This equals a dividend yield of 5.03 percent at the current share price of Rs 59.65.
Choksi Imaging
Choksi Imaging Ltd., founded in 1992, is a Small Cap company in the Miscellaneous category with a market capitalization of Rs 19.60 crore. Since the last five years, the company has had no debt. Photographic items are offered by Choksi Imaging Limited. X-ray films, chemicals, and accessories, as well as ultrasound and colour doppler, are all available from the company.
Choksi Imaging Ltd., founded in 1992, is a Small Cap company in the Miscellaneous category with a market capitalization of Rs 19.60 crore. Since the last five years, the company has had no debt. Photographic items are offered by Choksi Imaging Limited. X-ray films, chemicals, and accessories, as well as ultrasound and colour doppler, are all available from the company.
Gothi Plascon
Sales have decreased by 6.41 percent. For the first time in three years, the company’s revenue has decreased. Gothi Plascon (India) Ltd., founded in 1994, is a Small Cap company in the Plastics industry with a market capitalization of Rs 25.30 crore. Since March 26, 2020, Gothi Plascon (India) Ltd. has declared two dividends. It has issued an equity dividend of Rs 1.00 per share in the last 12 months.
This equates to a dividend yield of 4.03 percent at the current share price of Rs 24.80.
Rail Vikas
Since September 6, 2019, Rail Vikas Nigam Ltd. has issued three dividends. Rail Vikas Nigam Ltd. has declared an equity dividend of Rs 2.28 per share in the last 12 months. This equates to a dividend yield of 7.52 percent at the current share price of Rs 30.30. Rail Vikas Nigam Limited is a subsidiary of Indian Railways, Ministry of Railways, Government of India, which is responsible for developing rail infrastructure for the railways.
TCFC Finance
TCFC Finance Ltd., founded in 1990, is a Small Cap business in the Financial Services industry with a market capitalization of Rs 43.82 crore. Since the last five years, the company has had no debt. The company’s annual sales increase of 772.13% surpassed its three-year compound annual growth rate of -43.79 percent. Since July 15, 2004, TCFC Finance Ltd. has declared 13 dividends.
TCFC Finance Ltd. has issued an equity dividend of Rs 1.50 per share in the last 12 months. This equates to a dividend yield of 3.65% at the current share price of Rs 41.15.
Pressman Advertising
Pressman Advertising Ltd., founded in 1983, is a Small Cap company in the Media & Entertainment sector with a market capitalization of Rs 69.98 crore. Since the last five years, the company has had no debt. In comparison to the Nifty Smallcap 100, which returned 96.41 percent over three years, the stock returned -12.65 percent. In comparison to the Nifty Smallcap 100, which returned 96.41 percent over three years, the stock returned -12.65 percent.
Sumedha Fiscal
In the fiscal year ended March 31, 2021, PrCompany generated an ROE of 18.44 percent, surpassing its five-year average of 8.65 percent. Revenue increased by 57.41 percent year over year, the greatest in the prior three years. The stock returned 39.52 percent over three years, compared to 96.41 percent for the Nifty Smallcap 100. The company’s yearly sales growth of 10.59 percent surpassed its three-year compound annual growth rate (CAGR) of -2.65 percent.
Jullundur Motor
Since the last five years, the company has had no debt. Revenue fell 47.73 percent on a quarter-over-quarter basis, the lowest level in the last three years. The stock returned 95.01 percent over three years, compared to 96.41 percent for the Nifty Smallcap 100. Over a three-year period, the stock returned 95.01 percent, while the Nifty Auto provided investors a 26.87 percent return.
Jullundur Motor Agency (Delhi) Ltd., founded in 1948, is a Small Cap company in the Auto Ancillaries sector with a market cap of Rs 144.70 crore.
B N Rathi Securities
B N Rathi Securities Ltd., founded in 1985, is a Small Cap firm in the Financial Services industry with a market capitalization of Rs 19.20 crore. In the fiscal year ended March 31, 2021, the company generated a return on equity of 14.64 percent, surpassing its five-year average of 11.21 percent. Annual sales growth of 25.3 percent surpassed the company’s three-year CAGR of 3.65 percent. The stock returned 35.33 percent over three years, compared to 96.41 percent for the Nifty Smallcap 100.
10 Best Dividend-Paying Penny Stocks In India
| Company | Price in Rs | Dividend Yield |
| SJVN | 28.20 | 7.8% |
| Steel City Securities | 60.15 | 4.99% |
| Choksi Imaging | 50.50 | 4.95% |
| Gothi Plascon | 26 | 3.85% |
| Rail Vikas | 30.15 | 7.56% |
| TCFC Finance | 41.15 | 3.65% |
| Pressman Advertising | 29.35 | 3.44% |
| Sumedha Fiscal | 30.75 | 3.25% |
| Jullundur Motor | 63.40 | 3.15% |
| B N Rathi Securities | 39.10 | 3.07% |
Disclaimer
Please note investing in penny stocks is subject to market risks and one needs to be cautious at this point of time as markets have gone-up sharply. Neither the author, nor Greynium Information technologies Pvt Ltd would be responsible for losses incurred based on a decision made from this article.
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Reserve Bank of India – Press Releases
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The Reserve Bank of India (RBI) in exercise of the powers vested under section 45MAA of the Reserve Bank of India Act, 1934, has, by an order dated September 23, 2021, debarred M/s Haribhakti & Co. LLP, Chartered Accountants (ICAI Firm Registration No. 103523W / W100048), from undertaking any type of audit assignment/s in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022. This action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company. 2. This will not impact audit assignment/s of M/s Haribhakti & Co. LLP in RBI regulated entities for the financial year 2021-22. (Yogesh Dayal) Press Release: 2021-2022/1027 |
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Five foreign investors shortlisted for majority stake in Yes Bank-backed ARC, BFSI News, ET BFSI
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Five foreign investors have made presentations to the Yes Bank management to form a new joint venture asset reconstruction company (ARC) which will house the lender’s non performing assets (NPAs), three people familiar with the development said.
The investors which have made presentations include Los Angeles based $149 billion Ares-SSG Capital, $15 billion alternative investment firm Varde Partners, US based $55 billion Ceberus Capital and distressed asset giants $156 billion Oaktree Capital and private equity company JC Flowers, three people familiar with the move said. Individual investors and Yes Bank could not be immediately reached.
Yes Bank will likely hold a minority share in the proposed ARC in line with Reserve Bank of India (RBI) directions. The selected investor is likely to hold a majority as much as 80% to 85% in the new venture, one of the persons said. EY is helping Yes Bank with the process.
“The model is more of a NARC type. Banks are not encouraged to hold a major share in any ARC. That’s why they are selling it,” said a second senior executive involved in the matter.
He was referring to the government backed National Asset Reconstruction Co (NARC) which has been formed to resolve legacy bad loans from the banking sector.
“Investors have not yet been officially informed about the short listed firms so the process will take some more before the partner is selected,” said a third person familiar with the matter.
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